Rupee depreciation

RUPEE DEPRECIATION

By: Alika Koshy & Ribhu Vashishtha

What is Depreciation ?A decrease in an asset’s value caused by unfavourable market conditions.

Currency depreciation ? Currency depreciation is the loss of value of a country's currency with respect to one or more foreign reference currencies

It will make oil more expensive in rupee terms.

All imports will cost more and this will increase inflation.

Exporters will gain because they can earn more rupees for their foreign currency receipts.

It will make foreign travel costlier and particular hit Indian students studying abroad.

Impact of Rupee depreciation

Impact of Rupee depreciation

Rupee depreciation is adversely impacting the automobile sector in India like Maruti Suzuki being a net importer is incurring losses.

This is a double whammy for Toyota as on one hand Yen is appreciating and on the other Rupee is depreciating.

The rupee currency movement has been in favour of the IT industry as the exports have risen as 70% of the softwares created by the Indian IT industry are exported.

Rupee depreciation affects the balance of payment as there are more imports than the exports which results in a current account deficit.

Impact of Rupee depreciation

• The decline in the rupee will generate only a moderate impact on rated Indian companies, with the country’s largest oil refining and marketing company, Indian Oil Corp., facing the biggest challenges.

• The recent fall in the value of the Indian rupee is likely to affect the profits of about 70% of the companies that are rated in India. Nevertheless leverage will not improve for most companies, according to a Standard and Poor’s report.

Impact of Rupee depreciation

MEASURES Exporters were booking a forwards contract, cancelling it and then

rebooking at a better rate, which was contributing to the free fall of the rupee.

The RBI reduced the amount of open positions dealers can maintain overnight. At present, a company’s board is permitted to fix suitable limits for various treasury functions with net overnight open exchange positions and aggregate gap limits.

The broad message the RBI is trying to give is that speculative tendencies have to be curbed and genuine demand and supply should be allowed to move the currency rate.

In another move to defend the rupee, the central bank sold dollars.

V Balakrishnan of Infosys, said though the guidelines would not affect Infosys, it was a good step to reduce volatility and speculation in the market.